Martha Moore, Chief Economist | American Chemistry CouncilAmerica’s chemical manufacturers kicked off the year with solid momentum. Yet, amid a landscape of extraordinary global uncertainty, we anticipate headwinds in the coming quarters as supply chains undergo a realignment. Still, with its unmatched energy advantage and deep-rooted culture of innovation, the U.S. chemical industry is pivotal for driving the President’s ‘America First’ vision for revitalizing domestic manufacturing.
Economic Outlook
The. U.S. economy started the year on solid footing with inflation moderating and manufacturing trending upward. Coming into the middle of the year, however, unprecedented uncertainty has disrupted the global business environment. Businesses have faced higher costs for imported goods and supply chains have been interrupted. Imports surged during Q1 as customers and businesses built stocks ahead of tariffs, leading to a small contraction in Q1 GDP. Another wave of imports may emerge as companies that delayed or canceled orders due to the tariff announcements will rush to import goods to take advantage of the temporary reduction or removal of tariffs. This surge is likely to be offset by lower imports later in the year as businesses work off inventories accumulated during this period.
Pervasive uncertainty about trade policy and its potential impact has slowed economic activity in the U.S. and abroad. The lack of clarity makes it difficult for firms to make decisions, and as a result, orders, investment and hiring have been delayed as many firms adopt a “wait and see” position. As a result, U.S. GDP growth expectations have been lowered to 1.3% in 2025 and 1.6% in 2026 (down from 2.7% and 2.0%, respectively, in our Year-End Situation & Outlook).
Inflation continued to moderate through the first part of the year but is expected to accelerate as tariff impacts emerge as a short-lived boost in price levels. Unlike the stimulus-fueled and supply-chain driven inflation coming out of the pandemic, tariffs are not expected to lead to persistent growth in price levels. Consumer prices are expected to rise 3.2% in 2025, before dropping to 2.7% in 2026 with further declines through the forecast period. As a result, we expect the Federal Reserve to resume its rate-cutting program later this year.
Consumer spending is expected to downshift in 2025 as confidence has waned and higher prices for imports cut into household budgets. The labor market has also softened and wage growth is moderating, constraining consumers’ ability to spend. Consumer spending is expected to grow by 1.9% in 2025 and 1.4% in 2026.
Business investment is also expected to slow as headwinds from high interest rates, higher prices for imported equipment and materials, and a highly uncertain economic landscape constrain investment decisions. Business investment is expected to slow to a 1.7% pace in 2025 and 1.1% in 2026.
Worldwide companies are facing an uncertain environment due to the back-and-forth on tariff policy. The global economy has also been impacted by recent tariff announcements, as about 10% of total goods exports are shipped to the U.S. Recent manufacturing purchasing managers indices from major economies are showing lower production and orders as tariff and uncertainty impacts ripple through the global supply chain. As a result, expectations for growth and production have diminished for this year and into next. Global GDP is expected to rise 2.5% in 2025 and 2.7% in 2026 (down from 2.8% in both years in our Year-End Situation & Outlook).
Following a modest recovery in 2024, global industrial activity is expected to remain weak, growing by 1.5% before accelerating to 2.0% growth in 2026.
Despite a bounce in Q1, growth in world trade volumes is expected to slow to a 0.6% pace in 2025 and 0.4% in 2026 as tariffs dampen export demand.
Chemical Demand Remains Weak
More than 80% of basic and specialty chemicals are consumed by the industrial sector and manufacturing output was on an upswing at the end of 2024 and into Q1 2025. The uncertainty around tariffs, however, has dampened the recovery in industrial output. Following essentially stagnant growth over the past two years, overall industrial production is expected to rise 0.6% in 2025, largely on gains during the first part of the year. In 2026, headwinds are expected to continue to constrain industrial output growth to a 0.4% gain.
Despite gains in January and February, recent readings of the ISM Manufacturing PMI® suggest renewed weakness in U.S. manufacturing activity. Within manufacturing, performance among sectors has been uneven. In 2024, nine of the 20 key chemistry end-use industries we track expanded. Industries tied to semiconductors, computers, and electrical equipment did well, while industries linked to construction (e.g., structural panels, appliances, and furniture) remained weak. In 2025, we expect growth in ten of the 20 industries, with broad downward revisions to most end-use sectors.
Auto manufacturing is one of the most important end-use markets for chemistry. The average automobile built in North America contains more than $4,400 of chemistry products (including 426 lbs. of lightweight and durable plastics and composites). Even before tariffs, the total cost of vehicle ownership (including purchase prices, borrowing costs, insurance, maintenance, and repair) has escalated. Following a burst of sales activity in March and April, growth in vehicle sales is expected to move slightly lower to 15.6 million in 2025 and 15.5 million in 2026.
Housing is another important end-use market for chemistry. With 33,000 pounds of chemistry products in the average single-family home built in the U.S. Interest rate-sensitive housing continued to struggle in 2024 with starts coming in at a below-trend 1.37 million. Newly-built housing remains constrained by high mortgage rates and high building costs. Existing home sales, which are a leading indicator of remodeling activity, have also eased. Housing starts are expected to continue to move lower to 1.33 million in 2025 and 1.31 in 2026.
Muted Growth in U.S. Chemical Volumes in 2025
The upswing in manufacturing at the end of 2024 and into 2025 was reflected in higher chemical production. During Q1, U.S. chemical production was up 6% from Q1 2024. This is consistent with the findings of ACC’s Economic Sentiment Index that found chemical firms felt that overall business activity improved in Q1, but expectations over the next six months have deteriorated. As uncertainty has clouded the outlook for many chemistry-consuming end-use markets, chemical demand is expected to weaken as well. An uncertain export environment will also constrain chemical volumes, as exports account for nearly a quarter of chemical shipments. With a weaker back half of the year, we expect chemical output volumes to increase only 0.3% in 2025 with gains in agricultural, and consumer chemical volumes, offset by modest declines in basic and specialties chemical volumes. A small decline in chemical industry volume growth is expected in 2026. Within the U.S., the largest gains are likely to emerge in the Midwest and Western regions in 2025.
Basic chemicals production is expected to be slightly lower (-0.4%) in 2025 as a small gain in organic chemicals offsets declines in other segments. Plastic resins output is predicted to fall 1.4% in 2025, as manufacturing and export demand wanes. Specialty chemical output which also fell in 2024, is expected to post a 0.1% decline as a small gain in coatings production is offset by another decrease in other specialty chemicals production. Output of agricultural chemicals is expected to rise 3.6% this year and growth consumer chemicals, which saw strong gains in 2023 and 2024, is expected to shift lower to a 0.8% gain.
In 2026, chemical production is expected to be essentially flat (off by 0.2%). Output of basic chemicals is expected to rise 0.2% while specialty chemical output is expected to ease by 0.3% as many end-use sectors continue to struggle. Production of agricultural and consumer chemicals are expected to fall by 1.3% and 0.9%, respectively.
Globally, chemical production is expected to expand by 1.9% in 2025, down from a 4.0% gain in 2024. While gains are expected across all regions in 2025, those gains range from just 0.1% in North America to 2.7% in Asia/Pacific. Output in Europe which expanded in 2024 (following a steep decline in 2023), is expected to see more modest growth of 0.4% in 2025. Growth will continue into 2026 with global volumes up by 2.0%.
Disruptions to Chemicals Trade
Trade is vital to the U.S. chemical industry. As the 2nd largest manufacturing exporter, the chemical industry has maintained a trade surplus for decades. With the expected broad disruptions to global trade flows, U.S. chemical exports are projected to fall 1.9% this year (2025) and 2.1% in 2026. U.S. chemical imports are also projected to ease this year, falling by 1.0% and 5.5% in 2026. Both exports and imports are expected to rebound in 2027 and 2028 as growth re-engages. The U.S. continues to maintain a trade surplus in chemicals throughout the forecast horizon.
Capital Spending Slows Amid Uncertainty
Despite higher borrowing costs, capital spending on chemical industry projects rose 3.9% to $39 billion in 2024. Due to high interest rates, tariffs on imported equipment and materials, and unprecedented uncertainty, growth in capital spending is expected to slow to 1.6% in 2025 and 2.5% in 2026.
Chemical Industry Employment Eases
Following strong gains in 2022, chemical industry employment eased in 2023 and 2024. Chemical industry employment is expected to contract again in 2025 (by 0.1%) and 2026 (by 0.5%) as uncertainty and weak demand impact hiring.
Longer-Term Outlook & Opportunities for Enhanced Competitiveness
Notwithstanding the disruptions expected over the next several quarters as global supply chains are realigned, the longer-term outlook for U.S. chemistry remains positive. The U.S. chemical industry enjoys an energy and feedstock advantage that is expected to persevere for the foreseeable future. Strategic investments in advanced manufacturing will support chemical demand going forward. Recent announcements of new capacity for semiconductors, defense, and equipment to support the build out of artificial intelligence will be demand drivers going forward.
The new administration presents a golden opportunity to adopt policies that enhance the competitiveness of the U.S. chemical industry and help make America a manufacturing superpower. Among others, these policies include preserving tax provisions, targeted improvements to the Toxic Substances Control Act, updating transportation policies with smart reforms, embracing advanced recycling, and achieving trade policies that protect and bolster the U.S. chemical sector’s trade surplus. Creating a smart regulatory environment is vital to producing more chemistry in America and improving America’s ability to compete with other countries.
As with any outlook, there are variables that could alter the projected outcomes. Currently, there is tremendous uncertainty regarding trade policy that could impact this forecast to the upside or the downside. In addition, the Fed’s interest rate policy (and its impact on borrowing costs) is an important variable. The recent withdrawal of U.S. federal government support for research & development could inadvertently harm the nation’s leading position in innovation, with long-term competitive consequences. In addition, new or escalating geopolitical conflicts, unexpected financial volatility, external shocks (i.e., weather, cyberattack, etc.) could also disrupt this outlook.
The full data set with historic trends and forecasts through 2028 is available to ACC members on ACCExchange and to others on the ACC Store.
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